Tagged: 12400

Although the dollar was persistently strong today, one currency continues to buck the trend. The loonie refused to bend to sellers rejecting the 1.2400 resistance all day long. One possible reason is the rebound in crude which popped above the $50/bbl level and has stayed there for the past few days.

Some analysts believe that crude could trade up to $60/bbl which could fuel a move in USDCAD all the way to 1.2000 support. For now, the market will focus on crude inventory figures due tomorrow as well as comments from Governor Polosz. If both provide some support for the loonie USDCAD could quickly trade towards 1.2250 by the end of tomorrow’s trade.

For the past week, the loonie has been in a much need correction as the USDCAD bounced off the recent lows near the 1.2050 level. Some jawboning from BOC about the strength of the currency along with more hawkish Fed has helped push the pair back to 1.2400 figure, but even yesterday’s uber hawkish FOMC meeting could not push it past that level.

Tomorrow the market will get a look at CAD Retails Sales and CPI numbers. While Retail Sales are expected to slip, inflation is projected to rise. If the CPI numbers meet or beat the forecast USDCAD could quickly drop towards 1.2200 as expectations of yet another BOC hike will rise markedly.

The EURJPY trade is starting to show signs of life as the pair makes a sharp bottom off the 118.00. The bounce may be reflecting the “reflation” trade as all the major central banks are now moving away from QE mode into a more normal monetary policy regime.

Today’s ECB presser highlighted the fact that the central bank looking to taper eventually, although Mr. Draghi was quick to note that the ECB saw no signs of any serious inflation in the system just yet and therefore ready to maintain the status quo. Still, the market took his words a tilt to the hawkish side and the euro has remained supported throughout the day.

Meanwhile, USDJPY continues to probe the 115.00 barrier which has acted as cement ceiling for the pair since the start of the year. If tomorrow’s NFPs prove to be as good as forecast the 115.00 figure will likely fall by the wayside and EURJPY could explode towards the 124.00 target.

After Theresa May’s speech, today cable soared rising nearly four big figures off the lows of the day as it now stands within a few pips of the 1.2400 handle. Part of the run was fueled by the simple “sell the rumor, buy the news” dynamic, but part of the move was also driven by Ms. May’s promise to put the full Brexit to a Parliamentary vote.

However, upon further clarification, this was simply a promise to ratify a deal that will be negotiated well in the future rather than an admission that Parliament should vote on the trigger of Article 50. Still with UK Supreme court still to come chances are good that Ms. May may be forced to get Parliament approval before proceeding with any formal Brexit plans. If the ruling were to come in a few days it could well wipe out the last few shorts at these levels and push the pair into the 1.2500-1.2800 range. But if there is no fresh news for a few days, aside from the smattering of economic data, cable is likely to stall at these levels which represent the biggest resistance since its fall towards 1.2000 on the weekend open.

For now UK data continues to surprise to the upside and remains supportive of cable, but the Brexit woes dominate the trade in the pair and today’s speech offered little solace to pound bulls looking for a measured approach.

Fundamentals
Tomorrow is the BOC rate decision and the market believes that the central bank will stand still, arguing that pick up in manufacturing will offset the decline in oil production. That may provide the loonie with a temporary boost and may even pierce the 1.2400 support level. But the CAD rally is unlikely to last as the growth differentials between US and Canada which will in turn become yield differentials will begin to exert an upward pressure on the unit in months to come, which is why a dip may be a buying opportunity in the pair.

Technicals
Technically the pair is at the bottom of its 1.2800-1.2400 range and a sharp break below would suggest a distribution pattern. But if the range holds it may simply be a consolidation in what could still be a long term up trend.

The rebound in oil prices helped the Canadian dollar extend its gains against the greenback, which means it facilitated the sell-off in USD/CAD. The price of crude jumped 4% today on the back of concerns about a nuclear deal with Iran. While the White House said that progress was made in today’s talks, they also added that the country could face additional sanctions if the deal breaks down. Oil prices rose above $49 a barrel in response and could take another probe above $50. Canadian trade numbers are scheduled for release on Thursday and based on the rise in the IVEY PMI index, an increase is expected which could help compound the recovery and drive USD/CAD back towards 1.24, especially if the next few U.S. economic reports surprise to the downside.

Taking a look at the daily chart in USD/CAD, there is short term support at 1.26. If this level is broken, the currency pair should slip easily down to 1.24. Resistance remains at the 6 year high of 1.2835.